The federal district court in St. Paul, Minnesota, erred in granting Luminara a preliminary injunction barring Liown Electronics Co. and its associated entities (collectively, “Liown”) from supplying distributors with artificial candle products that infringe Disney Enterprises, Inc.’s U.S. Patent No. 8,696,166 (the “’166 patent”), the U.S. Court of Appeals for the Federal Circuit has ruled (Luminara Worldwide, LLC v. Liown Electronics Co. Ltd., February 29, 2016, Moore, K.). Based on the appellate court’s construction of the ‘166 patent, Liown raised a substantial question of validity of the ‘166 patent. Thus, the injunction was vacated and the case remanded for further proceedings.

In 2008, Disney Enterprises granted Candella a four-year worldwide license, encompassing the ‘166 patent, to “make, have made, use, sell, offer for [sale], and import” products practicing “Artificial Flame Technology,” which was defined to include Disney’s patents and know-how relating to “creating a unique artificial flickering flame effect.” In May 2012, Disney Enterprises and Candella renewed the license until 2020 on similar terms. The original terms of the license restricted Candella’s rights to the Artificial Flame Technology in several ways. The agreement was later amended four times (the “Amended Agreement”).

In early 2010, Candella approached Liown to manufacture its candles. Negotiations between the companies soon broke down, and Liown subsequently filed a patent application in China on flameless candles. Allegedly, Liown based this application on confidential information about the Artificial Flame Technology it obtained during its negotiations with Candella.

After filing this suit, Candella merged into Luminara. Luminara now possesses all of the rights formerly held by Candella. The district court denied Liown’s motion to dismiss for lack of standing. Luminara moved for a preliminary injunction based on Liown’s alleged infringement of claim 1 of the ’166 patent and Liown’s alleged tortious interference with Luminara’s customers. The court granted Luminara’s motion based on the alleged infringement without reaching the alternative ground of tortious interference. Liown appealed, challenging the court’s holding that Luminara had standing to bring the suit and its grant of a preliminary injunction.

Standing. Under Federal Circuit precedent, only parties with exclusionary rights to a patent may bring suit for patent infringement. The Amended Agreement sets out the scope of Candella’s rights to the Artificial Flame Technology; thus, the court looked to it to determine whether Candella had exclusionary rights to the asserted patents at the time this suit was filed.

Liown argued that Candella does not have exclusionary rights to the asserted patents because Disney retained the right to freely license the technology to any entity by creating new Affiliates. Thus, whether Candella could bring suit for patent infringement turns on the interpretation of Affiliate in the Amended Agreement. If Disney Enterprises did not retain the effective right to license the Artificial Flame Technology to any entity through the Affiliate provision, Candella would have had exclusionary rights, and therefore could sue to prevent Liown from infringing the asserted patents.

“Affiliate” does not have the broad meaning that Liown claimed, according to the Federal Circuit. Candella had exclusionary rights to the Artificial Flame Technology when this suit was brought. Disney did not retain the broad licensing rights proposed by Liown.

Liown’s next standing argument was that Disney retained substantial rights which prevent Luminara from bringing suit in its own name without joining Disney. If a party (exclusive licensee) has “all substantial rights” to a patent, it “may be deemed the effective ‘patentee’ under 35 U.S.C. §281,” and thus may maintain an infringement suit in its own name, without joining the patentee. If not, however, an exclusive licensee must join the patentee to bring suit.

Because one purpose of the joinder requirement is to protect the alleged infringer from multiple lawsuits, the transfer of the right to sue for infringement is critical. Disney Enterprises did not retain the right to sue here, the appellate court held. Instead, Luminara has the “sole and exclusive right” to sue infringers of the patents-in-suit under the Amended Agreement. Thus, the standing arguments raised by Liown were rejected.

Preliminary injunction. Liown argued that the preliminary injunction was improperly granted because there is a substantial question of validity—namely, whether Disney Enterprises’ earlier U.S. Patent No. 7,261,455 anticipates claim 1 of the ’166 patent. The Federal Circuit agreed.

The ’455 patent is also directed to artificial flame technology. The parties agreed that the ’455 patent discloses every element of claim 1 of the ’166 patent except the requirement that “the body is free to pivot when supported by the flame support element.” But the parties disputed whether rotation around two axes using gimbals (as taught in the ’455 patent) satisfies this limitation.

Because the ’455 patent teaches a body that moves in only two ways (that is, rotates around only two axes), the district court held that it did not satisfy the “free to pivot” limitation. In essence, the district court construed “free to pivot” to include two additional limitations: (1) chaotic movement and (2) movement that is more than rotation around two axes.

However, the ordinary meaning of “free to pivot” does not plainly require either of these limitations, the appellate court explained. Pivoting includes rotation around a single axis—for example, when a door pivots on its hinges, a dancer turns on a pivot foot, or a lever pivots on a fulcrum. And being “free to pivot” does not require chaotic motion.

The specification of the ‘166 patent disclaims non-chaotic pivoting. It explains that solitary flames are “complex kinetic interactions” that “produce a continuously and randomly moving light.” Thus, the Federal Circuit preliminarily construed claim 1 of the ’166 patent to require chaotic pivoting, with no further requirements on movement.

The ’455 patent undisputedly teaches pivoting in two axes. Furthermore, the ’455 patent teaches that the flame reflector, balanced on a gimbal mechanism allowing movement on a minimum of two axes, is “articulated by a natural and chaotic external or internal force (such as wind, magnetism)” to “randomly simulat[e] blowing in the wind.” The final limitation in claim 1 of the ’166 patent—chaotic movement—appeared to be met with this discussion of chaotic forces that can articulate the flame reflector of the candle device in the prior art ’455 patent, the Federal Circuit reasoned.

As a result, Liown’s argument that the ’455 patent anticipates claim 1 of the ’166 patent raised a substantial question of validity. The appellate court’s analysis as to whether there is a substantial question of validity was limited to claim 1 of the ‘166 patent, the only claim upon which the district court based the preliminary injunction, the court noted.

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